Faced with shrinking fees and looming threats to their traditional business, ad agencies are looking to tie how much they’re paid to the success of the campaigns they develop.

For years, advertisers and agencies have complained about the disparity between their compensation and the quality of work. Most clients pay fees based on the time and labor involved in creating a campaign, rewarding them for doing more, but not necessarily better, work.

Among the most vocal critics of the ad business’ economy, is Andy Berlin, the co-chief of WPP agency Red Cell in New York, who drew applause at an industry conference this month when he suggested a radical overhaul.

One of his ideas calls for agencies to “put skin in the game” by shouldering more of the marketing costs and risk upfront in exchange for the chance to share in the upside if the campaign’s a winner.

“The ad industry’s compensation model should be much more like that of the licensing or content industry,” he said. “You bare some of the costs and risks of development for the idea and you retain intellectual property rights.”

Berline said he has “not had one client who is not interested in this.”

Last fall, Cole & Weber/Red Cell in Seattle made an unusual proposition to beer company Rainier, a once-iconic brand in the Northwest. The pitch: A late-night TV show promoting the beer in which the agency would retain the rights to the material.

The 30-minute show, “Rainier Vision,” featuring two comedians and a cast of quirky characters, became a local hit and helped boost beer sales.

The agency, which is experimenting with other compensation models as well, was in it for the merchandise sales – including a DVD set – and not fees.

It used to be that agencies pocketed 15 percent of the cost of the media they purchased for their clients. Now, many advertisers just pay fees on costs like labor.

That model, though, means an agency can increase its pay only by increasing the cost to the advertiser.

“Cost-based arrangements are fundamentally flawed because they put the agency and advertiser in conflict,” said Tom Finneran, an executive vice president for the American Association of Advertising Agencies.

“Clients are frustrated and agencies are frustrated,” he said.

Consumer products giant Procter & Gamble, which boasts the biggest ad budget in the world, aligns its interests with those of its agencies. While other advertisers were moving to fees, P&G changed to compensating agencies based on sales of products. If sales increase, then an agency’s pay rises; if sales decrease, then it declines.

P&G’s system requires a big stable of brands and a lot of resources – making it impractical for smaller players. But observers expect companies will increasingly be looking for ways to tie pay to performance.